Paper gold traders overpowering physical holders for now

The U.S. Comex gold futures (COMEX:GCG14) declined 2.38% this week to $1,220.80 on Tuesday. The price touched $1,214.60 earlier in the day after a plunge of 2.29% on Monday. Year-to-date, the gold futures suffered a loss of 27% compared to a price gain of 26% in the S&P 500 Index (CME:SPZ13), 14% in the Euro Stoxx 50 Index, and 1% in the Dollar Index (NYBOT:DXZ13). So far this year, the 10-year U.S. government bond yield rose about 100bp to 2.78%. In the past two days, the U.S. stocks dropped 0.58% while the European stocks fell 2.36%.

Global Manufacturing Recovery

The U.S. has led the pack in manufacturing recovery outlook, fuelling the expectations of a Fed tapering. In November, the U.S. manufacturing ISM climbed to a 31-month high of 57.3, led by stronger exports orders and the housing recovery. The Euro-area November PMI rose to 51.6 compared to 51.3 in October, helped by Germany. In November, the U.K. manufacturing has risen the most since February 2011. In China, the November HSBC PMI was 52.6 while the service PMI was 56. Nevertheless, the latest durable goods orders in the U.S. actually fell two percent despite the rosier sentiments.

Little Love for Gold from Traders

The CFTC reported that the net combined gold positions by managed money fell 28% to 31,735 contracts as of Nov. 26. The short contracts jumped by about 20% to a four-month high. As stock prices have outperformed and inflation has not surfaced, traders and investors have lost interests in gold as a safe haven and an inflation hedge. Another year of decline in the CRB Commodities Index and in mining stocks has also dampened investors' interests in gold. Nevertheless, the growth in income in the middle class in various emerging countries will continue to boost the demand for physical gold. A gauge by BullionVault of the sentiment of private investors toward physical gold also held near a six-month high in November.